Managing Talent To Drive Higher Performance Ep 665

Summary Notes


In a discussion about innovative performance management, the host explores the concept of aligning personal goals with company objectives to drive employee engagement and productivity. They delve into the strategy of variable compensation, where employees set their own quantifiable goals with the potential to influence their earnings. This approach leverages social pressure, autonomy, and intermittent reinforcement to foster a culture of ownership and competition, particularly in roles not directly tied to sales. The host, who is building, shares insights from a friend's management practices, emphasizing the psychological benefits and potential for reduced employee turnover, while planning to implement similar strategies in their portfolio companies.

Summary Notes

Personal Goals and Company Alignment

  • Team members set personal goals aligned with company objectives.
  • The size of the goal is at the individual's discretion.
  • Social pressure ensures the goals are ambitious and beneficial to the team.

"If everybody on the team has to say what their personal goal is and they get to set it, and if they hit their personal goal, as long as it's aligned with the company goal overall, if they set that goal, they can set it as big or as little as they want, what happens is that the social pressure of wanting to set good goals automatically self corrects."

  • This quote emphasizes the importance of allowing team members to set their own goals, provided they are in line with the company's overall objectives. The social dynamics within the team will naturally encourage individuals to set meaningful and challenging goals.

Building Valuable Businesses

  • Discussion on strategies to sell more products to more customers.
  • The speaker is documenting their journey of building a billion-dollar business.
  • There is a wish that successful entrepreneurs like Bezos, Musk, and Buffett had shared their experiences in a similar way.

"Welcome to the game where we talk about how to sell more stuff to more people in more ways and build businesses worth owning. I'm trying to build a billion dollar thing with I always wish Bezos, Musk, and Buffett had documented their journey, so I'm doing."

  • Speaker B introduces the podcast's objective and expresses their intention to create a valuable resource by documenting the process of building a significant business, something they felt was missing from other famous entrepreneurs.

Talent Management for Higher Performance

  • Entrepreneurs face the challenge of improving their teams.
  • Culture and training are key, but certain processes can significantly enhance performance.
  • The speaker's friend uses a unique method involving variable compensation to drive results.

"A good friend of mine in my building had a really, really interesting way of managing talent to get and drive higher performance and output...every entrepreneur has the same problem, which is they need better people and they need to get more out of the people that they have."

  • The quote introduces a discussion on a novel approach to talent management that a friend of Speaker A uses, highlighting the universal challenge entrepreneurs face in maximizing the potential of their teams.

Variable Compensation Structure

  • Variable compensation is tied to performance metrics.
  • The approach differs for roles not directly linked to sales, such as leadership and executive positions.
  • Aligning personal incentives with company values is crucial for growth beyond solopreneurship.

"So one of the things that he shared with me that he did is that he has level of variable compensation. That's not new...for, let's say, leadership and executive need to have people who are all aligned."

  • Speaker A explains that while variable compensation is not a new concept, applying it effectively to non-sales roles, particularly in leadership and executive positions, is important for ensuring everyone in the company is working towards the same goals. This alignment is essential for entrepreneurs looking to expand their businesses.

Management by Objectives (MBOs)

  • MBOs are used to align company and individual goals.
  • Typically, objectives are split 50/50 between company and individual targets.
  • MBOs are used to structure compensation, with a balance between base salary and variable compensation.
  • Variable compensation is split again, half based on company growth and half on individual contributions.
  • Individual contributions might include adding new channels, creating processes, or hiring key personnel.
  • This structure allows individuals to earn part of their variable compensation regardless of overall company performance.
  • The system has been effective but is open to new methods.

"And so the way that we have split our things up to this point is that we do something called mbos, which is management by objectives, which are for the company and then also for the individual." This quote explains the concept of Management by Objectives (MBOs) and indicates that they are designed to cater to both company-wide objectives and individual employee goals.

"So we usually split them 50 50." This quote specifies the equal division of objectives between those that are company-focused and those that are individual-focused.

"Let's say they're making their targeted earnings is $200,000. We're going to give them $100,000 base and we're going to give them $100,000 of variable compensation." This quote illustrates the compensation structure that balances a fixed base salary with a variable component, which is contingent on meeting objectives.

"Half of that, which would be 25% of their total comp, is going to be of whether the company grows overall." This quote details how a portion of the variable compensation is tied to the overall growth of the company, aligning individual incentives with company success.

"The other half is going to be on whether they did something personally that they have control over." This quote clarifies that the remaining portion of the variable compensation depends on the individual's personal achievements within their role.

"Even if the business doesn't do well or doesn't hit the goals of growth or just marginally grows, they can still get half of their variable comp." This quote highlights the advantage of this compensation structure, where individuals can still receive a portion of their variable pay even if the company does not meet its growth targets.

"And so that is how we've done it up to this point, and it's worked well." This quote summarizes the success of the MBO approach in the company's experience, suggesting it has been an effective strategy thus far.

Alternative Compensation Strategies

  • The speaker is open to considering different compensation strategies.
  • The new method presented to them seems appealing, although not detailed in the transcript.
  • The willingness to explore alternative approaches indicates a dynamic and adaptable management style.

"But what he presented, it was a different way that I really, really liked." This quote indicates that an alternative method of compensation or management was presented to the speaker, which they found very appealing, pointing to a potential shift or enhancement in their current MBO system.

Compensation Structure in Teams

  • The compensation structure for a team is predetermined by management.
  • Team members may have limited negotiation power regarding their compensation terms.
  • There is a variable compensation component that is determined as a percentage of the total compensation.
  • The percentage of variable compensation is dependent on the role within the company.
  • An example given is a frontline customer service role with 15% of their compensation being variable.
  • If targeting a yearly salary of $50,000, $7,500 would be variable, equating to approximately $600 per month.

"the things that we set, we set for our team. Okay? So they don't have a choice in it, they just accept it. Or they might try to negotiate a couple of terms. But that's more or less how the compensation structure works."

This quote explains that the compensation structure is established by management, and team members generally have to accept it with minimal room for negotiation.

"With the way that he sets it up is that every position has a level of variable compensation. And that level you can determine. You can say you want it to be 10% or you can be 20% or it could be 50%. It depends on the role."

This quote indicates that variable compensation is a flexible component of the overall salary package, which can be adjusted according to the specific position within the company.

"Let's say 15% of their compensation variable. So if they're targeting, let's say $50,000 a year, then that would mean $7,500 would be potential to be variable."

The quote provides an example of how variable compensation is calculated as a percentage of the total targeted salary for a role.

Goal Setting and Autonomy

  • Team members set their own monthly goals for the variable compensation component.
  • Goals are set every 30 days and must be made public within the team.
  • Public goal setting introduces social pressure to set meaningful goals.
  • Autonomy is granted to team members as they choose their own goals.
  • Personal goals must align with the company's overall objectives to be valid.
  • Goals need to be quantifiable and contribute to the department's success.
  • Social pressure ensures that team members set realistic and ambitious goals to avoid setting trivial targets.

"What he does is that he says, this is the variable comp, and you get to set the goal every month. So it's a 30 day rolling goal."

This quote describes the process where team members are responsible for setting their own monthly goals related to their variable compensation.

"And every month they get to set the goal of what they're going to do. They have to show up publicly."

The quote highlights the requirement for goals to be public, adding a layer of social accountability to the goal-setting process.

"You also get autonomy because they're the ones who are picking it."

The quote emphasizes the autonomy given to team members in choosing their own goals, which is a key aspect of the compensation structure.

"If everybody on the team has to say what their personal goal is, right, and they get to set it, and if they hit their personal goal, as long as it's aligned with the company goal overall, like it's going to contribute to that goal, then they can make it."

This quote explains that personal goals must be in harmony with the company's broader objectives and contribute to the overall success of the department or division.

"What happens is that the social pressure of wanting to set good goals automatically self correct. Because you might think, well, what if they just say they get a half a percent improvement or something like that and then they hit it? Cool. But the thing is that people on the team are goi"

The quote suggests that social pressure serves as a self-correcting mechanism, ensuring that team members set significant and challenging goals rather than easily achievable ones. The quote is incomplete, but it implies that team dynamics encourage setting meaningful goals.

Employee Autonomy and Ownership

  • Employees given the freedom to set their own goals are more likely to take ownership.
  • Autonomy in goal-setting can lead to increased motivation and engagement.
  • An owner can structure compensation with a variable component to incentivize earnings.

"But they raised it, no one else. And so they have complete autonomy and ownership over that goal."

This quote emphasizes the importance of employees setting their own goals to foster a sense of autonomy and ownership, which is a key motivator.

Variable Compensation and Intermittent Reinforcement

  • Variable compensation can be a part of the salary, creating potential for higher earnings.
  • Intermittent reinforcement through variable rewards can motivate employees.
  • This strategy is useful for roles that don't directly tie to the bottom line and are hard to quantify.

"You just take 15% and make it variable. So they have the potential to earn the whole thing or they have the potential to earn somewhat less."

This quote explains how a portion of the compensation can be made variable, providing an opportunity for employees to earn more based on performance, which in turn motivates them.

Social Pressure and Competition

  • Social pressure and competition can be healthy motivators in the workplace.
  • These elements help employees feel like they are contributing to the company's growth.
  • Competition and social dynamics can encourage personal and professional development.

"They have complete autonomy and they have social pressure and they have some level of competition."

The quote suggests that the combination of autonomy, social pressure, and competition can drive employees to perform better and feel more connected to the company's success.

Psychological Aspects of Employee Motivation

  • Incorporating psychological strategies can enhance employee motivation and satisfaction.
  • Understanding the psychology behind motivation can lead to more effective management practices.
  • Creating an environment that psychologically engages employees can lead to growth within the company.

"There's just so much psychology behind doing things this way."

This quote highlights the importance of understanding and applying psychological principles to motivate employees and create a positive work environment.

Impact on Company Growth and Employee Retention

  • Motivated employees contribute to the overall growth of the company.
  • Employees who feel they are making progress are less likely to leave (reduced churn).
  • Creating an environment where employees feel challenged and fulfilled can improve business outcomes.

"Your churn will go down because people will feel like they're making progress."

This quote connects the idea of employee progress and growth to the benefit of reduced employee turnover, indicating how motivation and fulfillment can impact retention.

Creating a Fulfilling Work Environment

  • While fulfillment is subjective, creating an environment that fosters it can benefit the company.
  • Providing opportunities for challenge and growth can increase employee satisfaction.
  • A better business is built by increasing the likelihood of employees feeling fulfilled.

"But if you can create an environment that increases the likelihood that they feel that way, given a normal human construct, I think that you're going to build a better business."

The quote suggests that while fulfillment cannot be controlled directly, creating a supportive environment can enhance the chances of employees finding fulfillment, which is beneficial for the business.

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